A Change in the American Dream?

Written By: A. Wilt

June 2016

Home ownership is the most visible symbol of the American dream. Those who own their homes plant roots in a community, investing in both the home and in the neighborhood they settle down in. But that dream may be changing.

While home sales are starting to pick up after the financial crisis, that uptick is slow, and the actual percentage of home owners isn't increasing. In fact, it's going down. In the first quarter of 2016, the home ownership rate fell to 63.6% according to the US Census Bureau. That's down from 66.4% five years ago, with each percentage point representing about a million homeowners. Home ownership hasn't been this low since 1967.

If the economy is improving, why aren't home sales going up? There are a few main reasons – some of them economic, and some of them part of a longer term shift in the personality of generations.

While economists insist the economy is slowly recovering, that doesn't necessarily translate into a housing market boom. Many homeowners still haven't recovered from the housing market crisis that started the economic meltdown and are still underwater on their homes. Home ownership is no longer thought to be the safe investment it once was. That impression also comes at a time when it is becoming more difficult to secure a home loan – tightening mortgage underwriting standards is good for the security of the financial investment, but the flipside of that is that fewer people can meet the requirements.

Source: U.S. Census Bureau, Current Population Survey/Housing Vacancy Survey

Many younger Americans also carry heavier loads of student debt than previous generations. Rents are also rising. Those combined factors make it difficult to save a down payment and buy a home. Added to that, home prices are themselves starting to rise, and that rise primarily affects the lower priced homes first – the exact homes that first time buyers would be looking at.

All of those factors make it more difficult to buy that first home, both Generation X and the Millennial Generation have been slow to embrace home ownership the way that the Baby Boom generation has. Some of it, especially related to the Millennials, may be a personality change. After all, they are also settling into careers and marrying later than earlier generations. It would be easy to blame the downward trend on the youth, as we sometimes want to do.

It would be easy and it would be incorrect. Not all of the hesitation to buy homes is a younger generation taking responsibility later than previous generations. In fact, it's the middle-aged population that has been the slowest group to jump back into the housing market, and the most content to remain in their current homes or to rent.

Generation X has been particularly hesitant to engage in the housing market or trade up to a larger home. They came into the market just before or at the time of the housing collapse and suffered from the collapse more than other generations, leaving many of them gun-shy and unwilling to attempt home ownership again or to trade up out of their current home if they own one.

That hesitation to trade up has left fewer starter homes on the market. Scarcity on the market leads to prices of those starter homes going up, and thus becoming out of reach for many first time home buyers.

That tendency may be starting to change. While it still lags behind other groups in home ownership, Generation X is the only age group that is growing in home purchases, even if only slightly. And that's something that we'll need to improve if we are to remain a nation of homeowners. As the Baby Boomer generation ages and their housing needs change, it remains to be seen if the generations that follow will take the reins on home ownership, or if that American Dream changes too.